Read the following article, “Accelerating Inflation Spreads Through the Economy” (Links to an external site.), and answer the questions that follow. The title of the article will link you to the article. The article is located in the Collin College Library Database, which will require you to login with your CollinWeb Username and Password.
What is inflation and what are its implications for the economy?
Many students are balancing both student loans and car loans. What could happen to the price of loans like these in an inflationary economy?
Assume the economy is initially at full employment. Draw a full labeled Aggregate Supply – Aggregate Demand model. Label the Aggregate Demand curve (AD), the Short-Run Aggregate Supply curve (SRAS), and the Long-Run Aggregate Supply Curve (LRAS). Label the price level (PL1) and current GDP (Y1).
According to the article, what is driving the current inflationary trend? Fully explain your reasoning and illustrate his on the AS-AD model from above with a new AD and/or SRAS curve. Label the new curve AD2 and/or SRAS2. Label the new Price Level (PL2) and new GDP (Y2). Explain your reasoning for the change in aggregate demand and/or short-run aggregate supply.
